Scalzi, Stross, Shatzkin on DoJ, publishers, and Amazon

Ever since the Department of Justice first made noises about suing over agency pricing, interest in Amazon’s, the publishers’, and Apple’s pricing practices has revived, with everyone and his brother expressing an opinion. Just over the last few days, I’ve starred a couple of dozen commentary posts on my Google Reader trawls, which is a bit much to cover here, at least all at once. But I’ll hit a few high points.

Each of these companies are interested in making it appear that they are on your side, or at the very least, will wish to validate your choice to be on their side. Please be smarter than that. Recognize that they love you for your money. Recognize that they have entire corporate departments at their disposal to distract you from the fact that they love you for your money. Recognize that they are happy to use your desire for affiliation to help further goals that not only are you not necessarily aware of, but ultimately may not be in your interest. Recognize that things these corporations do that you see as immediate gains can lead to long-term losses, and vice versa.

In other words, ditch the simplistic binary framing. You’re not watching a sporting event, with simple rules and clear-cut goals. It really is more complicated than that, and your understanding of it should reflect that. When you reduce the players and tactics down to a simple “us vs. them” framing, you lose a lot of the reality of the situation. You also look like you’re not actually following what’s really going on.

A fair point. Though as Scalzi himself notes, he does have a dog in this hunt—he publishes through two of the Big Six, is sold through Apple, Amazon, B&N, and the retail web sites of his publishers, and owns a number of e-reading devices from different companies. And it’s also worth remembering that Scalzi has already shown himself to be firmly on the publishers’ side when it comes to readers’ disagreements with them.

Meanwhile, another great current SF author, Charlie Stross, has made a fairly long post to his blog on the nature of Amazon’s e-book strategy and how publishers might try to fight Amazon next. Stross notes that Amazon was designed from the outset to disintermediate the publishing and bookstore industry, which due to its evolved inefficiencies was particularly vulnerable to that sort of end run. Since Amazon doesn’t have to put up with the rotating display, rolling credit system through which bookstores send back books that don’t sell, it can keep its costs low and its selection high.

Then Stross brings up the terms “monopoly” (one seller to many buyers) and its less-heard sibling, “monopsony” (one buyer to many sellers). Both monopolies and monopsonies are bad things for different reasons, and Amazon seems to be trying to develop both a retail e-book monopoly and a wholesale e-book monopsony at the same time.

He touches on Amazon’s predatory pricing practices (comparing them to the way Wal-Marts would historically drive any local competition out of business, and then raise their prices). Then he goes into the history of e-books, which prior to 2008 weren’t much more than a less-than-1%-of-sales blip on publishers’ radar—but were subject to DRM at the insistence of the publishers’ parent companies who had been taught by Napster to fear piracy’s impact on their bottom line.

(This fear is of course an idiotic shibboleth—we’ve had studies since 2000 proving that Napster users back in the bad old days spent more money on CDs than their non-pirate peers. The real driver for piracy is the lack of convenient access to desirable content at a competitive price. But if your boss is a 70 year old billionaire who also owns a movie studio and listens to the MPAA, you don’t get a vote. Speaking out against DRM was, as more than one editor told me over the past decade, potentially a career-limiting move.)

And more interested in selling books than fiddling with software, the publishers outsourced their DRM to the e-book retailers—including Amazon. And now that e-books make up as much as 40% of the retail book market, Stross says, publishers are starting to realize they’ve inadvertently handed Amazon the keys to the kingdom.

Leaving aside the anti-trust matters, which Stross only touches on as a desperate attempt to roll the book market back 30 years, Stross feels that publishers are going to try fitting a second string to their bow to attempt to slay Amazon: they’ll ditch DRM in order to negate Amazon’s vendor lock-in that keeps people buying books from Amazon only once they’ve invested in Amazon’s DRM platform.

If the major publishers switch to selling ebooks without DRM, then they can enable customers to buy books from a variety of outlets and move away from the walled garden of the Kindle store. They see DRM as a defense against piracy, but piracy is a much less immediate threat than a gigantic multinational with revenue of $48 Billion in 2011 (more than the entire global publishing industry) that has expressed its intention to "disrupt" them, and whose chief executive said recently "even well-meaning gatekeepers slow innovation" (where "innovation" is code-speak for "opportunities for me to turn a profit").

Agency pricing has itself not been ruled illegal—what got the publishers into trouble was how they implemented it together, rather than the terms themselves. But Amazon’s discounting behavior has also effectively been approved—retailers can discount some of a publisher’s books all they want as long as they make a profit across the whole body of the publisher’s books (which, Shatzkin says, is what Amazon already told him it did under its $9.99 loss leader pricing of popular titles).

Shatzkin also points to a Melville House blog post listing some emails from the Department of Justice’s evidence submissions that seem to point toward a conspiracy, but then edited the blog post later after someone pointed out to him that the discussions were more likely about Bookish, the cooperative book retailing venture funded by Hachett

e, Simon & Schuster, and Penguin (which we covered in May and December of last year).

Shatzkin wonders how Amazon will react to this new turn of events. He doesn’t make any grand predictions about publishers getting rid of DRM, but he does point out that “Every company in the industry is going back to the drawing board. Only one is not unhappy about it.”

TeleRead Editor Chris Meadows has been writing for us--except for a brief interruption--since 2006. Son of two librarians, he has worked on a third-party help line for Best Buy and holds degrees in computer science and communications. He clearly personifies TeleRead's motto: "For geeks who love books--and book-lovers who love gadgets." Chris lives in Indianapolis and is active in the gamer community.

3 COMMENTS

It’s John Scalzi and his ilk that are trying to spin this into “taking sides”. It’s not. The US DoJ has charged the 5 publishers and Apple with conspiring to drive up ebook prices. To those of us that witnessed the implementation of the agency scam, it was obvious that it was illegal and we’re glad they’re finally getting charged. That’s all.

The BPH defence that they were only doing to to stop the evil Amazon monopoly deserves the same credibility as if I copy 2,000 ebooks to a torrent server and claim that I’m doing it to stop the Amazon monopoly. If you make me remove them you’re siding with Amazon.

Scalzi is just another in a long line of industry insiders who are obsessed with anthropomorphising the whole situation in order to obscure the realities of simple business and commerce.

Stross makes some fair points, especially about DRM, and Shatzkin doesn’t really contribute much except to repeat the obvious, and he illustrates by his comments the appalling stupidity of the management and strategy of the publishers over the last decade when they were given ample explicit warnings about the coming digitisation of their industry and what it would mean. They ignored everyone and kept their heads firmly in the sand while Amazon got on with the job.

I also note than none of these players has anything to contribute on why none of the big publishers appears to have any plans or wherewithal to launch any kind of direct competition to Amazon’s online and device business. I find this really quite bizarre.

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